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San Jose, Costa Rica

The think-tank said further institutional and policy reforms will be critical to maintaining the gains made in the Central American country and called on the government to take immediate steps to get its house in order.

OECD secretary general Angel Gurría commended Costa Rica’s gradual recovery from the global economic crisis and said it is now expected to grow faster than most other countries in Latin America and the OECD.

But he noted that while annual growth is projected to remain strong over the next two years – at about 4% ‒ budgetary pressures “are becoming more persistent”.

“Putting the house in order will require raising more tax revenues, restraining public spending while improving its efficiency and ensuring that public finances are managed in an effective manner,” he said.

The OECD’s first economic assessment of Costa Rica suggests the country immediately work towards the consolidation of public finances through programmed cuts to the deficit, which the OECD anticipates will exceed 5% of gross domestic product in 2017 with existing policies.

It added that swift implementation of proposed tax reforms, combating tax evasion, eliminating tax exemptions and curbing growth in public spending “will be critical”.

The establishment of a medium-term fiscal framework, with a clear and verifiable expenditure rule, improvements to competition policy, the governance of state owned enterprises and other measures to boost productivity such as innovation and better access to transport infrastructure were also recommended.

The OECD noted that economic reforms “go hand-in-hand” with efforts to make Costa Rica more inclusive, especially for informal workers and women.

Improving the quality of education and the effectiveness of cash transfers would expand opportunities and ensure prosperity is shared more widely, it said.